Which one of the following is a general characteristic of a securities broker?
A. Trades from his or her own inventory
B. Trades only foreign securities
C. Trades listed securities in an auction market
D. Trades electronically from any geographic location
E. Is the principal trader of debt securities
In a typical month, River City Tours received 60 checks totaling $144,000. These are
delayed 3 days on average. What is the average daily float? Assume 30 days in a month.
A. $12,500
B. $13,333
C. $14,400
D. $16,217
E. $16,667
Kroeger Exporters has total assets of $74,300, net working capital of $22,900, owners
equity of $38,600, and long-term debt of $23,900. What is the value of the current
assets?
A. $21,600
B. $24,300
C. $38,900
D. $34,700
E. $46,100
Which one of the following is the correct formula for the future value of $500 invested
today at 7 percent interest for 8 years?
A. FV = $500/[(1 + 0.08) x 7]
B. FV = $500/[(1 + 0.07) x 8]
C. FV = $500/(0.07 x 8)
D. FV = $500 (1 + 0.07)8
E. FV = $500 (1 + 0.08)7
Cromwells Interiors is considering a project that is equally as risky as the firms current
operations. The firm has a cost of equity of 13.7 percent and a pretax cost of debt of 8.4
percent. The debt-equity ratio is .65 and the tax rate is 40 percent. What is the cost of
capital for this project?
A. 9.97 percent
B. 10.29 percent
C. 11.38 percent
D. 11.62 percent
E. 12.30 percent
Which one of the following defines the internal rate of return for a project?
A. Discount rate that creates a zero cash flow from assets
B. Discount rate that results in a zero net present value for the project
C. Discount rate that results in a net present value equal to the projects initial cost
D. Rate of return required by the projects investors
E. The projects current market rate of return
Which one of the following is included in net working capital?
A. Newly purchased equipment with a useful life of 6 years
B. Mortgage on a building payable over the next 12 years
C. Interest on a long-term debt
D. 10-year bonds issued to the general public
E. Invoice from a supplier for inventory purchased
The required return on Mountain Brook stock is 14 percent and the dividend growth
rate is 5.5 percent. The stock is currently selling for $18.80 a share. What is the
dividend yield?
A. 7.50 percent
B. 8.93 percent
C. 9.75 percent
D. 10.50 percent
E. 12.50 percent
Ignoring the option to wait:
A. may overestimate the internal rate of return on a project.
B. may underestimate the net present value of a project.
C. ignores the ability of a manager to increase output after a project has been
implemented.
D. is the same as ignoring all strategic options.
E. ignores the value of discontinuing a project early.
One year ago, you purchased a 5 percent coupon bond with a face value of $1,000 when
it was selling for 101.2 percent of par. Today, you sold this bond for 99.8 percent of par.
What is your total dollar return on this investment?
A. $36
B. $60
C. $64
D. $74
E. $82
A corporate bond pays 6 percent interest. How much would a municipal bond have to
pay to be equivalent to this on an after-tax basis if you are in the 15 percent tax bracket?
A. 3.96 percent
B. 4.28 percent
C. 5.10 percent
D. 9.75 percent
E. 11.47 percent
Suppose you bought a 6 percent coupon bond one year ago for $929. The bond sells
today for $933. The face value is $1,000. If the inflation rate last year was 4.3 percent,
what was your total real rate of return on this investment?
A. 1.02 percent
B. 2.48 percent
C. 4.31 percent
D. 6.89 percent
E. 7.08 percent
The weighted average cost of capital is defined as the weighted average of a firms:
A. return on its investments.
B. cost of equity and its aftertax cost of debt.
C. pretax cost of debt and equity securities.
D. bond coupon rates.
E. dividend and capital gains yields.
Which one of the following will decrease the liquidity level of a firm?
A. Cash purchase of inventory
B. Credit sale of inventory
C. Cash sale of inventory
D. Collection of an account receivable
E. Proceeds from a long-term loan